From City AM Forum, Tech resentment in San Francisco is ignoring the real culprit: Government
RENTS are rising, pushing people on low incomes out of the neighbourhoods they’ve lived in for years. Resentment towards the rich is growing, with the most profitable and dynamic industries singled out for the most ire. Talk of a cost of living crisis, driven above all by the cost of housing, is dominating politics.
This isn’t London, it’s San Francisco. In Resentment City, as Time called it this week, discontent has focused on the Silicon Valley workers whose housing needs and high incomes have driven the price of rents out of the reach of many long-time residents...
Yes, that's as can't be helped. We want to have successful businesses who pay high wages, and their employees like living near their employer so rents go up.
But the transfer of wealth here is not from the natives to the newly arrived high earners (if anything it is in the other direction, trickle down), it is from both groups to land owners, who collect the higher rents from both groups (trickle up).
But they’ve chosen the wrong target. The problem is not too many rich Silicon Valleyites buying and renting, it’s that the city has a housing shortage. It comes down to supply and demand. As the Cato Institute’s David Boaz has noted, San Francisco’s strict planning laws have made it much more costly to build new housing to meet rising demand. Zoning laws restrict the construction of higher density buildings on the city’s limited land mass...
Yes, they've chosen the wrong target. But the target is neither "the government" nor "strict planning laws".
The real passive beneficiary of all this are the landowners. Governments don't go round imposing strict planning laws for the sadistic fun of it, they do it under pressure from different groups of landowners, all wishing to collect/enjoy as much rent as possible while preventing others from doing so.
The fact that they are cutting off their noses to spite their own faces and making things worse for everybody is by-the-by.
Instead of Google employees, we have bankers and foreigners, but the principle is the same: people are attacking the demand-side, instead of asking why the government has put a stranglehold on the supply-side...
The government didn't, the landowners did, using the government as its own agent.
The US economist Karl Smith has pointed out that a new book by Thomas Piketty on the history of equality seems to show that the rise in capital’s share of GDP in the West is largely down to land-use planning controls like those of London and San Francisco. If we want to let the market do its job of resolving conflicts over scarce resources, we – and San Franciscans – should be angry at the government, not the rich.
For a start, the share of GDP going to capital has been going down in line with the share going to wages (reflected by lower interest rates), it is the share going to monopolies, above all to land owners, which has been increasing.
We also happen to know as a matter of fact that new construction only puts a very short term dampener on price rises, and then only if new construction is on a massive scale. Once the dust has settled, rents and prices will tend to go up (more housing = more people = more specialisation = higher wages = higher rents).
Why did Google (and all the other Silicon Valley companies) decide to set up shop where they did rather than in the middle of the desert? Because they need lots and lots of employees, so they go where all the people are.
That's why rents in areas with a high population/density are higher than in areas with a low population/density. Just building more homes to try and get rents down is like throwing twigs on a fire to cool it down.
And if they allowed higher density buildings, the total rental value of each individual site goes up; instead of collecting rents from ten flats, the lucky landowner can now collects rents from twenty flats; land outside the 'zone' which gets rezoned for development sees a huge uplift. Whether the new rent-per-unit falls slightly or goes up slightly is neither here nor there.
So he has managed to turn the whole logic on its head - the share of GDP going to land owners is 'too high' and he suggests something (liberalise planning laws) which will push it even higher.
Oh dear.
Debate Magazine
